Interrelationships among Capital Structure, Dividends, and Ownership: Evidence from South Korea

This paper examines the interrelationships among debt policy, dividend policy, and ownership structure using a simultaneous equation framework. Our approach allows us to test both the convergence of interests theory and entrenchment theory. Using a sample of publicly traded South Korean manufacturing firms, we find that debt policy and ownership structure have a positive impact on dividend policy. We also find that both debt and dividend policy are positively related to ownership structure. Our findings support both the theory of convergence of interests between management and ownership and entrenchment theory, and also explain why many studies have found conflicting results.